By Willem Vinke
During the first half of October, global equity markets fell sharply due to investors’ concern over faltering economic growth; worries about a falling oil price; weakness in the Russian currency and the worsening of the Ebola crisis in Western Africa.
In the bond markets there was a squeeze on loss making speculative positions which pushed spreads between the best sovereign credits and weaker countries (such as Greece) sharply wider. This “risk off” trade peaked on the 15 October and the remainder of the month saw a remarkable recovery in equity prices. Indeed, in the US, the S&P 500 Index gained over 8% from its low point to reach a new all time high by month end. European markets saw a similar sized recovery as they moved back into positive territory for 2014. Continuing strong data from the US coupled with expectations of further support measures from the European Central Bank (ECB) and the Bank of Japan (BoJ), appear to have been the catalyst for this strong rebound.
The Fund outperformed its benchmark index in October, a pleasing performance in a volatile period. At the stock level, Visa and Philip Morris reported strong earnings and rose sharply as a result, while Sanofi warned that it was struggling with pricing of its key drug in the US and announced that the CEO had left the company. Elsewhere the Fund exited positions in Enterprise Inns, Henkel and Kinnevik, where the expectations for earnings growth have been scaled back.
As companies release comments regarding their outlook for 2015, the Advisor anticipates that expectations for profit increases will continue to be tested. However in the near term, it appears that many speculative positions have been eliminated and in these quieter, less volatile conditions, a year-end rally should not be ruled out.
Commentary provided by Lofoten Asset Management in their capacity as Investment Adviser to the Fund as of 11 November 2014